Finance
teams are the performance management captain of the corporate ship
empowered to provide the executive team, and business and support units
with real insight and understanding of past, present, and future
performance while guiding them on what the information means to each of
their constituents and how it can be interpreted for decision making.
That is their most strategic value to the business. However, because of
the explosion of information, speed of business, growing systems
through M&A and unique information capture needs of different areas
of the business not to mention growing business practice demands, such
as regulatory compliance to meet the regional, national, and global
reporting requirements, the corporation’s most important analytical
asset, finance departments, remains mired in just completing the basic
week-to-week tasks without providing this strategic guidance. As a
result, emerging trends, exploitable opportunities, efficiency gains,
addition-by-subtraction divestitures, and M&A opportunities go
undiscovered because the analytical part of finance is asleep at the
wheel. It has its proverbial head down doing the day-to-day grind of
low-value activities where this analytical blind spot can eventually
drive the company out of business. Let me illustrate.

In
the 1960′s, IBM was the 800-pound gorilla in the mainframe business
whose technology supremacy went unchallenged and superior performance
went virtually unabated into the 1970′s. They were the blue suits
bearing information-based mainframes to help companies use data to run
their large – sometimes multinational – businesses with greater know-how
about customers, products, operations, and financial performance far
more adeptly than any other technology could. Yes, they were considered
the masters of product innovation largely due to world-class business
practices and industry expertise. However, Big Blue got complacent and
far too comfortable in their long held pole position. Their inflated
confidence and market share eventually disintegrated as they missed the
advent of the new information-based technology, which, if they would
have had the right analytic capabilities in place, they would have seen
it coming; the emergence of the minicomputer. Minicomputers were
technologically simpler than mainframes but with stronger computing
power while requiring less resources to run them. To be fair, it wasn’t
just IBM that missed the advent of minicomputers. It was virtually
every mainframe company in existence at that time. This new technology
virtually wiped out the entire mainframe business such that no mainframe
business would be a major player in the minicomputer business at all.

What happened? What was missed? Who screwed up?

In my opinion, there were many failures that caused this emerging
technology to go unaddressed by IBM and others, but the chief culprit
who could and should have been prepared for it was finance. Yes, I
think it’s up to finance as the owners of business performance (past,
present, and future) to fundamentally understand the business climate –
internally and externally – to then advise their corporate constituents
on what the information they’ve analyzed means to them. For this to
happen finance needs to get a handle on its core responsibilities before
it can begin to really spot these performance-sapping icebergs that can
possibly turn into business shuttering threats.

Let’s get back to the technology story for a minute if that’s okay. Then, I’ll finish my point.

Where were we? IBM’s out because the mainframe business has gone
south – way south by way of the minicomputer. Exit IBM. Enter Digital
Equipment Corporation. DEC virtually created the minicomputer business
along with a few other aggressively managed companies like Data General,
Prime, Wang Computer, Hewlett-Packard, and Nixdorf. Did DEC and others
in the minicomputer business learn any lessons from IBM’s big miss on
the minicomputer market so as to not repeat the same mistake? Of course
not. The story of DEC’s demise rings almost too tellingly true to
IBM’s mainframe debacle of the 1970′s. In fact, the management gurus
and business journals missed it too. Digital Equipment Corporation was
considered by all who had some insight into the company’s operations as
being the ultimate technology company for decades to come. For certain
it was a featured company in the McKinsey Study that became the stellar
1980′s management book, In Search of Excellence. DEC seemed
destined for monster success. Still, despite all this fanfare, DEC
missed the next wave in computing technology, the desktop computer
market.

Again, where was finance watching past performance by measuring and
monitoring it, to get analytical insight into what the future might look
like to then advise their constituents across the business on what all
of this means to each one of them? Answer: Heads down.

The desktop computing market was predictably seized not by DEC or one
of its minicomputer compadres but by Apple Computer, Tandy, Commodore,
and IBM’s PC-division. (Yes, IBM can’t be held down for long!)

What happened next? Like Rick Blaine says in the movie Casablanca,
“Play It Again, Sam.” Apple, Tandy, IBM and the rest of the desktop
computer gang focused on making the best desktop computers they could
but ended up missing the next new, new thing. Apple Computer and IBM
lagged 5 years behind bringing the latest-and-greatest technology rage
to the market: portable computers. That market was owned by Silicon
Graphics, Sun, and Apollo – all newcomers to this market.

In
each case, the leading companies mentioned were regarded as the gold
standard given their product excellence and operational execution only
to be quickly pushed aside by an out-of-nowhere, technologically
superior solution that reset the market’s expectations rendering the
prior leader’s solution frumpy and stale. Missing emerging trends in
the marketplace and not adapting to them quickly enough can ring a death
knell for most companies. Think Wang, Silicon Graphics, Apollo. For
others, this misstep can set them back 5 or even 10 years before they’re
back on their feet again.

As a note, in the above example, I simply chose the technology sector
but we could have easily used the retail merchandising sector (Think
Sears vs. Nordstrom) or retail books (Think Barnes & Noble vs.
Amazon), or Automotive (Think GM vs. Toyota). Each situation is an
example of a failure to see the changing landscape which, I believe,
finance is mostly at fault for squandering these opportunities.

How come finance? I think finance failed their companies in each
instance because they weren’t effective enough in managing the
day-to-day, low value tasks which, if they had them under control, they
would have greater leverage to spend time on higher-value practices like
forecasting and business analytics to uncover data points that can help
the entire business spot emerging market forces before it’s too late to
respond. This responsibility to identify these threats and
opportunities lies squarely on finance. If not them, then who else? Be
careful because whomever you’ll name will probably expect finance to
provide them with the meaningful insight into performance results across
the business as well as external information, which, again, means it’s
incumbent on finance.

So, how does finance get to that point where it’s able to provide
this kind of insight with the resources it has because Lord knows it’s
not going to get additional headcount? Well, it all starts with finding
a way to better leverage the resources it has. This requires finance
teams to get the lower value tasks automated as much as they can so that
they can off-load these process management steps to take on added
capacity for these analytic practices.

What are the world class finance teams doing to be analytic leaders
in their industry? World class analytic finance teams have these
repeatable practices down to great consistency and repeatability from
end-to-end:

These practices are the foundational elements required for finance to
be the advisor in providing guidance to the business. Excel at the
practices mentioned above and you’re soon positioning your analytic
experts on your finance team to do the real analysis they’re supposed to
be doing. It’s incumbent upon the CFO’s finance department to provide
this guidance and leadership given finance’s role as the performance
managers for the company. It is therefore finance’s job to provide
insights into past, present, and future performance but also trends,
anomalies and market opportunities that become visible only after
thorough analysis of the information-based business results gleaned from
systems, i.e. ERP, CRM, SCM, etc. and processes, i.e. forecasting,
what-if scenario analytics, etc.

This finance role is looked to not only explain past business
performance and its financial effects but also advise and guide the
strategy in determining where to make investments with the resources at
hand. The CFO’s analytics team – finance – needs to spend its time not
on the everyday execution of basic, low value process steps, like
compiling, validating, and reconciling data for various internal and
external reporting needs but also analyzing past, present, and future to
present guidance on what’s happened, what’s happening now, and what
could happen. Only with an infrastructure in place to easily manage
these basic elements of the finance team’s mandate can the real
value-added analytic insights come to light. Otherwise, their companies
will continue to drive through its business climate with a perpetual
blind spot on what’s coming soon rendering them the next Tandy Computer,
Silicon Graphics, or Apollo.

As
organizations seek the best ways to respond to a volatile marketplace
that can change on a dime, the functions that were once the purview
of finance organizations, such as enterprise planning, budgeting,
forecasting and analysis, have spread to other parts of business,
such as business units and organizations. This is because financial
performance management – led by Finance -- has become increasingly
strategic in organizations, regardless of their size or market
sector.

While
initial deployments might have once been focused on Finance,
companies are tending to deploy performance management solutions more
broadly in organizations. Therefore, performance management is
rapidly migrating from finance to executives and everyday business
users, who are taking on more and more responsibility for financials,
analytics, planning/budgeting, risk analytics, and reporting on these
processes, such as profitability analysis. Additionally, many
companies that have successfully implemented these financial
performance management (FPM) solutions, such as a planning solution
or a financial controls, would now like to integrate these solutions
with other FPM software and technology for a more complete solution.

To
maximize the value obtained from either putting financial analytics
in the hands of this new, wider audience with a common planning
platform or from greater FPM solution integration, finance
departments are challenged with managing and supporting these new
tools and capabilities for numerous divisions, regions and functions
and making sure that they work together. (See related article in this
blog: “Financial Performance Management & The Agile Enterprise: Two Sides of the Same Coin,” by Tim O'Bryan) Processes
that were already in place to manage spreadsheet sharing and review
and manual processes are no longer sufficient. Developing an
enterprise-wide initiative with standard technologies and processes
that allows for extensions of current implementations is critical,
and a Finance Center of Excellence (FCOE) can provide the reusable
knowledge, disciplines and best practices to make these financial
performance management initiatives possible.

“Get your house in order.” This expression is referenced everywhere. I hear politicians repeatedly using it: “Before we start talking new taxes or entitlement reforms we gotta get our house in order.” Sports figures too: “We had a great practice today but, before we think about competing for the division title, we gotta get our house in order.” Celebrities aren’t immune from invoking it either: “Like, I totally want to hit the party scene again but, since I like just got out of rehab, I like think I need to lay low and totally like get my house in order first. One more thing…do you know where I can get a drink around here?” Okay. Maybe that last one’s a stretch.

Relating this expression to the processes owned by the finance functions at corporations, the house that most often needs to get in order is the Close, Consolidate, Report & File process, or CCRF. The timeliness and accuracy in this process is pivotal for company survival. Still, many companies struggle with this process for many reasons. Some of these reasons are that businesses are still using multiple opaque and rigid systems lacking any integration capabilities to seamlessly align each of the activities like the required disclosures and governance of financial statement reporting. Also, and most frequently, there are poorly trackable and error-prone manual inputs or overrides to the data as spreadsheets and stand alone documents are often used in this process. A lot of companies are using out-of-date and misappropriated tools without any audit-able workflow management system. This time consuming, labor intensive approach leads to unnecessary delays completing the CCRF process in a timely and reliably accurate manner. As a result, there’s little trust from the business users that these performance results are indeed accurate. Therefore, the figures become largely ignored by the business users rendering them useless for business insight. This leaves the workforce normally relying on these results to help make their strategic decisions forced to act on their gut or intuition. Not good….and I haven’t even gotten into the ramifications of disclosing incorrect information to regulators or shareholders!

The Close, Consolidate, Report & File Process

FINANCE: LIKE THE MYTHOLOGICAL ATLAS THEY’VE GOT THE WEIGHT OF THE WORLD ON THEIR SHOULDERS BUT LACK THE MUSCLE TO HOLD IT UP

Finance departments are already overburdened with newfound regulatory, compliance, and financial reporting requirements not to mention new disclosure expectations and the forthcoming global XBRL initiative while being pushed to be more analytical and insightful about “what the data is telling them” in regards to critical business impacting activities like market analytics, customer profitability, predictive analytics, scenario planning, etc. Yes, the rising water level of requirements falling under their purview shows no signs of abatement. Yet, empirical research backed up by the likes of The Hackett Group, APQC and the IBM Global CFO/CIO Studies, shows that these finance departments continue to shrink in size relative to revenue at a time when they should be growing. What’s wrong with this picture???

New disclosure requirements and global XBRL mandates means more work within tight time frame,

while having to respond tointernalpressures from the following:

Evolving role of CFO and the Office of Finance

Need to liberate finance professionals from manual and complex processes

Executive management needs timely and accurate reports to respond to market opportunities in very short time

Changing Events & Regulations Since 1999

THE ANSWER: AUTOMATION THROUGH AN INTEGRATED SOLUTION

A controlled, automated, audit-able CCRF practice is required for finance to be doing the right things. Finance teams are re-engineering their financial close processes to individual close, consolidate, report & file activities. To manage and monitor these processes, they’re investing in integrated solutions that can automate these activities into a unified, secure solution. Implementing this integrated CCRF solution provides instant benefits by automating administrative tasks with embedded controls to allow finance to focus on analysis and other high-value activities. CCRF practices are no longer simply about closing the books, consolidating the data while running inter-company eliminations, minority interest calculations, and currency translations to come up with ‘the numbers’ before finally publishing them out on some financial reports. No, there’s additional disclosures and financial governance required. To get ahead of this one you’ve got to implement a CCRF system to manage it all else the levee will break and we know what happens then.

Find out more about how to automate this process because it’s not going to shrink in requirements. So, get that house in order or I’ll invite that celebrity I referenced earlier over to your house for dinner. :)

Ever sat through a presentation and thought to yourself, “I have no clue what that person just said for the past 45 minutes!” It’s the ‘you lost me at hello’ problem. Between all of the business buzzwords, consulting jargon and vendor speak it’s at times difficult to comprehend what’s really important in all of that gobbley-gook presentation schtuff. Unfortunately, a subject like Financial Performance Management is susceptible to falling into that trap. I suppose Hollywood would be making movies about it if it was that entertaining a topic. Still, this doesn’t mean there’s nothing to it. I encourage you to read on and learn more about Financial Performance Management. It’s transforming the way business is run today creating a dynamic, knowledgeable, and nimble workforce with access to the right information to make smarter decisions everyday.

What I thought I would do is write a summary of what Financial Performance Management is, which is captured in this submission, and then in future updates I would breakdown each of FPM’s five components mucxh further one by one. So, here goes…

Ventana Research defines Financial Performance Management as, “The practice of managing the effectiveness and efficiency of Finance by aligning people, processes and systems to a common set of goals and objectives.” Ouch. That sounds nice and straight forward but I still have no idea what the heck it is. Essentially, Ventana is talking about unifying all practices (people, process, and technology) typically owned by the finance department to optimize the output of this function. Still, this doesn’t help much in explaining what the heck it is, does it??? Here’s an idea. Let’s do this….Let’s look at these core Finance-owned processes which comprise FPM. I think this will help explain things better.

Each of these 5 areas are integral to an organization’s sustainability and should be institutionalized as a single practice called FPM. The more seamless these processes work together the more effective not just the Finance function becomes but also the entire organization. Finance may own these practices but every function of the organization benefits from an FPM solution because when the FPM solution is deployed properly the workforce in marketing, sales, development, operations, finance, IT and the executive team are able to view critical information about how well the business, the competition, and the suppliers are performing while, at the same time, this information is being used to provide all of the compliance and regulatory filings necessary. Yes, a single version of the truth yielding benefits for your risk management practices, your forecasting practices, your profitability modeling and, of course, your corporate reporting requirements.

Here is a breakdown of the 5 key Finance-owned processes:

1. Close, Consolidation, Report & File

Includes processes like:

Account Analysis

Close Analytics

Financial Consolidation

FInancial Controls

Corporate & Financial Reporting

Regulatory Filing (e.g. 10K/Q, XBRL)

2. Profitability Modeling & Optimization

Includes processes like:

FInancial Analytics

Spend Analytics

Profitability Analytics

Product, Market, Channel Analysis

3. Planning, Analysis and Forecasting

Includes processes like:

Revenue Planning and Forecasting

Expense Planning & Control

Workforce Planning

Capital & Initiative Planning

4. Performance Reporting & Scorecarding

Includes processes like:

Scenario modeling, what if analysis

Alerts, data exploration, drill-thru capability

Scorecards & dashboards

Predictive Metrics

Real-time reporting

5. Governance, Risk & Compliance

Includes processes like:

Financial Controls

Operational Risk

Policy & Compliance

IT Governance

Internal Audit

More to come on this subject in future blogs individually detailing each of the five areas of FPM.

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